91 FR 12516

[Federal Register Volume 91, Number 50 (Monday, March 16, 2026)]
[Proposed Rules]
[Pages 12516-12524]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2026-05105]

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COMMODITY FUTURES TRADING COMMISSION

17 CFR Chapter I

RIN 3038-AF65

Prediction Markets

AGENCY: Commodity Futures Trading Commission.

ACTION: Advance notice of proposed rulemaking; request for comments.

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SUMMARY: The Commodity Futures Trading Commission (Commission or CFTC)
is issuing this Advance Notice of Proposed Rulemaking and seeking
public comment regarding event contract derivatives traded on markets
commonly referred to as ``prediction markets.'' In particular, the
Commission is seeking information and public comment on statutory core
principles and Commission regulations that apply to prediction markets,
the types of event contracts that may be prohibited as contrary to the
public interest, cost-benefit considerations related to prediction
markets, and other topics. The Commission may use the information and
comments received from this Notice to inform potential future agency
action, such as rulemaking, with respect to prediction markets.

DATES: Comments must be in writing and received by April 30, 2026.

ADDRESSES: You may submit comments, identified by ``Prediction
Markets'' and RIN 3038-AF65, by any of the following methods:
CFTC Comments Portal: https://comments.cftc.gov. Select
the ``Submit Comments'' link for this release and follow the
instructions on the Public Comment Form.
Mail: Send to Christopher Kirkpatrick, Secretary of the
Commission, Commodity Futures Trading Commission, Three Lafayette
Centre, 1155 21st Street NW, Washington, DC 20581.
Hand Delivery/Courier: Follow the same instructions as for
Mail, above.
Please submit your comments using only one of these methods.
Submissions through the CFTC Comments Portal are encouraged.
All comments must be submitted in English, or if not, accompanied
by an English translation. Comments will be posted as received to
https://comments.cftc.gov. You should submit only information that you
wish to make available publicly. If you wish the Commission to consider
information that you believe is exempt from disclosure under the
Freedom of Information Act (FOIA), a petition for confidential
treatment of the exempt information may be submitted according to the
procedures established in Sec. 145.9 of the Commission's
regulations.\1\
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\1\ 17 CFR 145.9.
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The Commission reserves the right, but shall have no obligation, to
review, pre-screen, filter, redact, refuse or remove any or all of your
submission from https://comments.cftc.gov that it may deem to be
inappropriate for publication, such as obscene language. All
submissions that have been redacted or removed that contain comments on
the merits of the rulemaking will be retained in the public comment
file and will be considered as required under the Administrative
Procedure Act and other applicable laws, and may be accessible under
FOIA.

FOR FURTHER INFORMATION CONTACT: Mark Fajfar, Senior Assistant General
Counsel, 202-418-6636, [email protected], Office of the General Counsel,
Commodity Futures Trading Commission, Three Lafayette Centre, 1151 21st
Street NW, Washington, DC 20581.

[[Page 12517]]

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Background
A. Prediction Markets
B. Statutory and Regulatory Requirements
C. Past Commission Notices Regarding Prediction Markets
II. Questions and Request for Comment
A. Core Principles and Commission Regulations
B. Public Interest
C. Activities Listed in CEA Section 5c(c)(5)(C)
D. Procedural Aspects of CEA Section 5c(c)(5)(C)
E. Inside Information
F. Types of Event Contracts and Other Issues

I. Background

A. Prediction Markets

On prediction markets, participants buy and sell contracts based on
whether events stated in the contracts occur. Prediction markets
``function as information aggregation vehicles'' because the contract
prices will reflect the market participants' aggregate beliefs
regarding whether the events will occur.\2\
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\2\ See Concept Release on Appropriate Regulatory Treatment of
Event Contracts, 73 FR 25669, 25669 (May 7, 2008) (2008 Concept
Release).
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As discussed further below, the contracts traded on prediction
markets may fall within the definition in the Commodity Exchange Act
(CEA) of the term ``swap.'' \3\ The contracts may also be contracts for
the future delivery of a commodity (futures contracts) that are covered
by the CEA.\4\ A prediction market which offers swaps or futures
contracts for trading by the general public must register with the CFTC
as a designated contract market (DCM), which the Commission is charged
with overseeing.\5\ Since the early 1990s, parties have sought
Commission staff guidance regarding prediction markets, and the
Commission first designated a prediction market as a DCM in February
2004.\6\
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\3\ See CEA section 1a(47), 7 U.S.C. 1a(47).
\4\ See CEA section 2a(1)(A), 7 U.S.C. 2(a)(1)(A).
\5\ See Id., which expressly extends the CFTC's ``exclusive
jurisdiction'' to encompass ``transactions involving swaps or
contracts of sale of a commodity for future delivery . . . traded or
executed on a contract market designated pursuant to [CEA section 5,
7 U.S.C. 7] . . . .'' The CFTC shares jurisdiction over mixed swaps
and security futures with the Securities and Exchange Commission
(SEC), and the SEC has sole jurisdiction over security-based swaps.
See section 1a(44) of the CEA, 7 U.S.C. 1a(44) and sections 3(a)(55)
and 3(a)(68) of the Securities Exchange Act of 1934 (Exchange Act),
15 U.S.C. 78c(a)(55) and 78c(a)(68). See also section 712(d)(1) of
Title VII of the Wall Street Transparency and Accountability Act of
2010 (Dodd-Frank Act) (directing the CFTC and SEC to undertake joint
rulemaking on covered topics).
\6\ See CFTC Order of Designation for HedgeStreet, Inc. (Feb.
20, 2004), available at https://www.cftc.gov/sites/default/files/opa/press04/opa4894-04.htm. The Commission's Division of Market
Oversight issued staff no-action positions to two academic
institutions. The no-action positions provide that, subject to
specified terms, staff will not recommend enforcement action for
operating prediction markets, without registration as a DCM, swap
execution facility, or foreign board of trade, that offer trading in
political and economic indicator event contracts for academic
purposes. See CFTC Staff Letter No. 93-66 issued to the University
of Iowa (June 18, 1993), available at https://www.cftc.gov/sites/default/files/idc/groups/public/@lrlettergeneral/documents/letter/93-66.pdf. This no-action position superseded a more limited no-
action position issued in 1992. See also CFTC Staff Letter No. 14-
130 issued to Victoria University of Wellington, New Zealand (Oct.
29, 2014), available at https://www.cftc.gov/csl/14-130/download.
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While the term ``event contract'' is not a defined term in the CEA
or the CFTC's regulations thereunder, the CFTC has used this term to
describe derivative contracts, typically with a binary payoff
structure, based on the outcome of an underlying occurrence or event
since at least 2008.\7\ In this document, the term ``prediction
market'' refers to a CFTC-registered DCM or swap execution facility
(SEF) that offers event contracts for trading.\8\
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\7\ See 2008 Concept Release. See also Contracts & Products:
Event Contracts, available at https://www.cftc.gov/IndustryOversight/ContractsProducts/index.htm.
\8\ In addition to DCMs, a SEF may make any swap, including an
event contract, available for trading. See CEA section 5h, 7 U.S.C.
7b-3. However, swap trading on a SEF is not available to the general
public, but rather only to institutional investors within the
definition of ``eligible contract participant'' in CEA section
1a(18), 7 U.S.C. 1a(18).
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Since 2021, the Commission has observed a significant increase in
the number of event contracts listed for trading on prediction markets,
as well as in the diversity of occurrences and events underlying such
contracts.\9\ The Commission has also received recent applications for
DCM registration, and expressions of interest regarding DCM
registration, from entities that have indicated that they are
interested primarily, or exclusively, in operating prediction
markets.\10\
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\9\ From 2006-2020, DCMs listed for trading an average of
approximately five event contracts per year. In 2021, this number
increased to 131, and the number of newly-listed event contracts per
year remained at a similar level until 2025, when DCMs certified
approximately 1,600 event contracts for listing for trading. These
event contracts are based on a wide variety of financial indices,
economic indicators, weather events, political events, international
events, scientific and cultural events, current events, and sporting
events. A list of event contracts certified for listing is available
on the CFTC's website. See https://www.cftc.gov/IndustryOversight/IndustryFilings/TradingOrganizationProducts?Status=Certified&Category=Event.
\10\ As of March 2026, Commission staff are reviewing several
pending applications for DCM designation from entities with a stated
interest in operating prediction markets. Commission staff have
received multiple additional inquiries from other entities
indicating an interest in applying for DCM registration in order to
operate prediction markets.
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As noted above, event contracts can fall within multiple
subsections of the CEA's definition of ``swap.'' CEA section
1a(47)(A)(ii) defines ``swap'' to include ``any agreement, contract, or
transaction . . . that provides for any purchase, sale, payment, or
delivery (other than a dividend on an equity security) that is
dependent on the occurrence, nonoccurrence, or the extent of the
occurrence of an event or contingency associated with a potential
financial, economic, or commercial consequence.'' \11\ Also, CEA
section 1a(47)(A)(i) defines the term ``swap'' to include ``any
agreement, contract, or transaction . . . that is a put, call, cap,
floor, collar, or similar option of any kind that is for the purchase
or sale, or based on the value, of 1 or more interest or other rates,
currencies, commodities, securities, instruments of indebtedness,
indices, quantitative measures, or other financial or economic
interests or property of any kind.'' \12\ Event contracts traded as
swaps under CEA section 1a(47)(A)(i) are sometimes referred to as
binary options, a type of swap which is an ``option whose payoff is
either a fixed amount or zero.'' \13\
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\11\ 7 U.S.C. 1a(47)(A)(ii).
\12\ 7 U.S.C. 1a(47)(A)(i).
\13\ See CFTC Futures Glossary, available at https://www.cftc.gov/LearnAndProtect/AdvisoriesAndArticles/CFTCGlossary/index.htm#B.
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Prediction markets can also list event contracts for trading as
futures contracts.\14\ Since futures contracts are specifically
excluded from the statutory definition of ``swap,'' these event
contracts are not swaps.\15\
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\14\ See CEA section 2a(1)(A), 7 U.S.C. 2(a)(1)(A). A list of
event contracts certified for listing as futures contracts is
available on the CFTC's website. See https://www.cftc.gov/IndustryOversight/IndustryFilings/TradingOrganizationProducts?Type=Future&Category=Event.
\15\ CEA section 1a(47)(B), 7 U.S.C. 1a(47)(B), provides that
``[t]he term `swap' does not include--(i) any contract of sale of a
commodity for future delivery (or option on such contract) . . . .''
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Although the event contracts listed on CFTC-registered DCMs and
SEFs are swaps or futures contracts subject to the jurisdiction of the
CFTC,\16\ other event contracts referencing events associated with
potential financial, economic or commercial consequences may be
security-based swaps or other instruments subject to the jurisdiction
of the SEC.\17\
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\16\ See supra, note 5.
\17\ See 7 U.S.C. 1a(47)(B) (providing ``exclusions'' from the
definition of ``swap'' under the CEA, including for securities such
as security based-swaps, certain options, and debt securities); see
also, e.g., 15 U.S.C. 78c(a)(68)(A) (defining ``security-based
swap'' under the Exchange Act).

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[[Page 12518]]

B. Statutory and Regulatory Requirements

A prediction market that seeks to list event contracts for trading,
or make event contracts available for clearing, must comply with the
substantive and procedural requirements that apply, more generally, to
the listing for trading, or making available for clearing, of
derivative contracts.\18\ Further, a prediction market is subject to
statutory requirements to only list or permit trading in derivative
contracts that are not readily susceptible to manipulation; \19\ to
enforce compliance with contract terms and conditions; \20\ and to
monitor trading on the exchange in order to prevent manipulation, price
distortion, and disruption of the settlement process through market
surveillance, compliance, and enforcement practices and procedures.\21\
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\18\ For example, Regulation 40.2, 17 CFR 40.2, sets forth the
general process by which a DCM or SEF may list a new derivative
contract for trading by providing the Commission with a written
certification. See also infra, note 27.
\19\ See Core Principle 3 for DCMs, CEA section 5(d)(3), 7
U.S.C. 7(d)(3), and Core Principle 3 for SEFs, CEA section 5h(f)(3),
7 U.S.C. 7b-3(f)(3).
\20\ See Core Principle 2 for DCMs, CEA section 5(d)(2), 7
U.S.C. 7(d)(2), and Core Principle 2 for SEFs, CEA section 5h(f)(2),
7 U.S.C. 7b-3(f)(2).
\21\ See Core Principle 4 for DCMs, CEA section 5(d)(4), 7
U.S.C. 7(d)(4), and Core Principle 4 for SEFs, CEA section 5h(f)(4),
7 U.S.C. 7b-3(f)(4).
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In addition to the more generally applicable requirements to which
registered entities are subject when listing derivative contracts for
trading or making such contracts available for clearing, CEA section
5c(c)(5)(C) grants the Commission the authority to prohibit prediction
markets from listing for trading or making available for clearing
particular types of event contracts, if the Commission determines that
such contracts are contrary to the public interest.\22\
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\22\ 7 U.S.C. 7a-2(c)(5)(C).
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Specifically, CEA section 5c(c)(5)(C)(i) provides that, ``[i]n
connection with the listing of agreements, contracts, transactions, or
swaps in excluded commodities[\23\] that are based upon the occurrence,
extent of an occurrence, or contingency (other than a change in the
price, rate, value, or levels of a commodity described in [CEA] section
la(2)(i)),[\24\] by a [DCM] or [SEF], the Commission may determine that
such agreements, contracts, or transactions are contrary to the public
interest if the agreements, contracts, or transactions involve--(I)
activity that is unlawful under any Federal or State law; (II)
terrorism; (III) assassination; (IV) war; (V) gaming; or (VI) other
similar activity determined by the Commission, by rule or regulation,
to be contrary to the public interest.'' \25\
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\23\ The term ``excluded commodity'' is defined in CEA section
1a(19), 7 U.S.C. 1a(19), as: ``(i) an interest rate, exchange rate,
currency, security, security index, credit risk or measure, debt or
equity instrument, index or measure of inflation, or other
macroeconomic index or measure; (ii) any other rate, differential,
index, or measure of economic or commercial risk return, or value
that is--(I) not based in substantial part on the value of a narrow
group of commodities not described in clause (i); or (II) based
solely on one or more commodities that have no cash market; (iii)
any economic or commercial index based on prices, rates, values, or
levels that are not within the control of any party to the relevant
contract, agreement, or transaction; or (iv) an occurrence, extent
of an occurrence, or contingency (other than a change in the price,
rate, value, or level of a commodity not described in clause (i))
that is--(I) beyond the control of the parties to the relevant
contract, agreement, or transaction; and (II) associated with a
financial, commercial, or economic consequence.''
\24\ There is no ``section 1a(2)(i)'' in the CEA. The Commission
believes that the reference in CEA section 5c(c)(5)(C)(i) to
``section 1a(2)(i)'' is a typographical or drafting error.
\25\ 7 U.S.C. 7a-2(c)(5)(C)(i). CEA section 5c(c)(5)(C)(ii), 7
U.S.C. 7a-2(c)(5)(C)(ii), further provides that ``[n]o agreement,
contract or transaction determined by the Commission to be contrary
to the public interest under clause (i) may be listed or made
available for clearing or trading on or through a registered
entity.''
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In 2011, the Commission adopted final rules under part 40 of the
Commission's regulations, including new Regulation 40.11.\26\ The
Commission adopted Regulation 40.11 to implement CEA section
5c(c)(5)(C) as part of broader changes to the Commission's part 40
regulations.\27\
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\26\ Provisions Common to Registered Entities, 76 FR 44776 (July
27, 2011).
\27\ Part 40 of the Commission's regulations, more generally,
implements the contract and rule submission requirements for
registered entities set forth in CEA section 5c(c). For example,
Regulation 40.2 sets forth the general process by which a DCM or SEF
may list a new derivative contract for trading by providing the
Commission with a written certification--a ``self-certification''--
that the contract complies with the CEA, including the CFTC's
regulations thereunder. 17 CFR 40.2; see also CEA section 5c(c)(1),
7 U.S.C. 7a-2(c)(1). The Commission must receive the DCM's or SEF's
self-certified submission at least one business day before the
contract's listing. 17 CFR 40.2(a)(2). Regulation 40.3 sets forth
the general process by which a DCM or SEF may elect voluntarily to
seek prior Commission approval of a derivative contract that the DCM
or SEF seeks to list for trading. 17 CFR 40.3; see also CEA sections
5c(c)(4)-(5), 7 U.S.C. 7a-2(c)(4)-(5). Amendments to an existing
derivative contract also must be submitted to the Commission either
by way of self-certification or for prior Commission approval. 17
CFR 40.5, 40.6.
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C. Past Commission Notices Regarding Prediction Markets

In 2008, the Commission published the 2008 Concept Release,
requesting input from the public on the appropriate regulatory
treatment of prediction markets.\28\ The 2008 Concept Release was
prompted by the Commission's receipt of requests for guidance related
to the application of the CEA to prediction markets.\29\ The Commission
ultimately did not take further action at that time.
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\28\ See supra, note 2.
\29\ Between 1992 and 2008, CFTC-registered exchanges listed for
trading event contracts involving interests such as regional insured
property losses, the count of bankruptcies, temperature
volatilities, corporate mergers, and corporate credit events. 2008
Concept Release, 73 FR at 25671.
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In 2024, the Commission proposed rules to further specify the types
of event contracts that fall within the scope of CEA section
5c(c)(5)(C) and are contrary to the public interest.\30\ In 2026, the
Commission withdrew the proposed rules to reconsider them ``in light of
various forms of state regulatory actions and litigation concerning the
Commission's exclusive jurisdiction over event contract derivatives
listed on [DCMs] and the proper application of the swap and excluded
commodity definitions under the [CEA].'' \31\
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\30\ Event Contracts; Proposed Rule, 89 FR 48968 (June 10,
2024).
\31\ Event Contracts; Withdrawal of Proposed Regulatory Action,
91 FR 5386 (Feb. 6, 2026).
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Given that the number of applications for DCM registration has more
than doubled over the past year, largely from entities that are
interested primarily, or exclusively, in operating prediction markets,
the Commission is issuing this Advance Notice of Proposed Rulemaking to
seek information about significant issues that have come to light since
the 2024 proposal. The comments provided will assist the Commission in
the formulation of a potential future agency action, including
rulemaking, with respect to prediction markets.

II. Questions and Request for Comment

In responding to each of the following questions, please provide a
detailed response, including the rationale for such response, cost and
benefit considerations, and relevant supporting information, such as
data, or studies when available. The Commission encourages commenters
to include the assigned topic number of the specific request for
comment in their submitted responses to facilitate the review of public
comments by Commission staff.

A. Core Principles and Commission Regulations

1. What factors should the Commission consider in determining
whether to provide guidance or amend its regulations regarding how the
DCM Core Principles in CEA section 5(d) apply to prediction markets?
\32\ Are there specific points on which the Commission should provide
guidance or

[[Page 12519]]

adopt rule amendments? Why or why not?
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\32\ 7 U.S.C. 7(d).
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2. With respect to the following DCM Core Principles, what factors
are relevant to prediction markets?
a. Core Principle 2 states that a DCM ``shall establish, monitor,
and enforce compliance with the rules of the [DCM], including--(i)
access requirements; . . . and (iii) rules prohibiting abusive trade
practices.'' \33\ Regulation 38.151, adopted under this core principle,
requires that a DCM provide ``impartial access to its markets and
services, including . . . [a]ccess criteria that are impartial,
transparent, and applied in a non-discriminatory manner.'' \34\ What
aspects of prediction markets affect how a DCM provides impartial
access and prohibits abusive trade practices? Are there potential
barriers to impartial access that the Commission should consider? Are
there particular risks of abusive trading?
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\33\ CEA section 5(d)(2), 7 U.S.C. 7(d)(2).
\34\ 17 CFR 38.151.
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b. Core Principle 2 also requires a DCM to ``establish, monitor,
and enforce compliance with . . . the terms and conditions of''
contracts traded on the DCM.\35\ In this regard, what factors should
the Commission consider regarding a DCM's rules related to resolution
criteria for event contracts? For example, if there is a dispute
regarding how an event contract is resolved or how the trigger event
for an event contract is determined (such as a dispute regarding
whether an event underlying a contract has occurred), what factors
should the Commission consider in setting expectations for DCMs to have
rules to resolve the dispute? Are dispute resolution procedures for
other types of swaps, such as credit default swaps, helpful precedents?
Also, what considerations under Core Principle 14, which requires a DCM
to have ``rules regarding, and provide facilities for alternative
dispute resolution as appropriate for, market participants and any
market intermediaries,'' \36\ are relevant in this regard?
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\35\ CEA section 5(d)(2)(A)(ii), 7 U.S.C. 7(d)(2)(A)(ii).
\36\ CEA section 5(d)(14), 7 U.S.C. 7(d)(14).
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c. Core Principle 3 states that a DCM may list ``only contracts
that are not readily susceptible to manipulation.'' \37\ How should a
determination of whether an event contract is ``readily susceptible to
manipulation'' be made? What factors should be considered? Are there
particular aspects of event contracts that make this determination
different from the determination with respect to other listed
contracts? Do any existing rules for other types of exchanges and
platforms (i.e., not prediction markets) limit or mitigate the
potential for manipulation? If so, how and to what extent are these
rules appropriate as requirements for prediction markets? See also the
questions regarding inside information in part II.E. below.
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\37\ CEA section 5(d)(3), 7 U.S.C. 7(d)(3).
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d. Core Principle 4 states that a DCM ``shall have the capacity and
responsibility to prevent manipulation, price distortion, and
disruptions of the delivery or cash-settlement process through market
surveillance, compliance, and enforcement practices and procedures.''
\38\ Do any aspects of prediction markets pose challenges to compliance
with this Core Principle or, on the other hand, facilitate compliance?
Are there market surveillance, compliance, or enforcement practices on
which the Commission should focus? Are there existing surveillance
practices for detecting suspicious activity in other types of exchanges
and platforms that would be useful in prediction markets?
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\38\ CEA section 5(d)(4), 7 U.S.C. 7(d)(4).
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e. Core Principle 5 states that a DCM shall, for each contract,
adopt position limitations or position accountability for speculators
as is necessary and appropriate to ``reduce the potential threat of
market manipulation or congestion.'' \39\ What factors should the
Commission expect a DCM to consider in adopting position limitations or
position accountability for prediction markets? For example, what
factors should the Commission consider regarding how position limits
across similar event contracts should be aggregated (e.g., whether
there is the same underlying reference, or whether there are similar
references)? Are there reasons why event contracts, as compared to
other swaps and futures contracts, should, or should not, be subject to
different position limitations or position accountability? Are existing
position limitation or position accountability provisions helpful as
precedent for determining how prediction markets should implement such
measures?
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\39\ CEA section 5(d)(5), 7 U.S.C. 7(d)(5).
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f. Core Principle 11 requires that a DCM have ``rules and
procedures for ensuring the financial integrity of transactions entered
into on or through facilities of the [DCM] (including the clearance and
settlement of the transactions with a derivatives clearing organization
[(DCO)]); and rules to ensure the financial integrity of any
[intermediary] and the protection of customer funds.'' \40\ Currently,
event contracts are fully collateralized. What factors should the
Commission consider in determining whether prediction markets should be
permitted to offer trading on margin, and should such factors be
different for retail as opposed to institutional customers? If margin
is provided to retail customers, what disclosure, if any, should the
Commission consider to ensure that customers are fully informed of the
consequences and potential losses resulting from the customer's failure
to meet margin requirements? If prediction markets are allowed to offer
trading on margin, what factors should be involved in the calculation
of initial margin, such as concentration, or liquidity (i.e., the cost
to the DCM to liquidate a defaulting member's portfolio)? What methods
should be involved, such as a flat percentage rate or a statistical
analysis? Given that some event contracts resolve quickly and others
may not resolve for years, what time series of data and other time
period considerations should be involved when calibrating appropriate
margin? What factors should be involved in considering other issues
such as whether daily variation margin should be required, the time
intervals for collecting margin, and the instruments permitted for
posting initial margin and exchanging variation margin? What products
should be eligible for cross-margin with event contracts if trading on
margin is allowed? See also question 3.c. regarding the implications of
margin trading for DCOs.
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\40\ CEA section 5(d)(11), 7 U.S.C. 7(d)(11) (formatting
modified).
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g. Core Principle 20 requires a DCM to ``establish and maintain a
program of risk analysis and oversight to identify and minimize sources
of operational risk, through the development of appropriate controls
and procedures, and the development of automated systems, that are
reliable, secure, and have adequate scalable capacity.'' \41\ What
sources of operational risk related to prediction markets should the
Commission consider? What operational risk analysis and other measures
do prediction markets currently employ? Are there challenges to the
reliability, security or scalable capacity of the systems used by
prediction markets?
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\41\ CEA section 5(d)(20), 7 U.S.C. 7(d)(20).
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h. In general under the DCM Core Principles, what factors should
the Commission consider with respect to blockchain-based prediction
markets? Are there challenges or advantages in applying existing
regulations and guidance to blockchain-based prediction

[[Page 12520]]

markets? Which areas, if any, would benefit from Commission guidance or
rule amendments for blockchain-based prediction markets?
3. Are there aspects of the clearing of event contracts that the
Commission should consider in applying the DCO Core Principles in CEA
section 5b(c)(2)? \42\ Are there specific points on which the
Commission should provide guidance or adopt rule amendments? If so,
why?
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\42\ 7 U.S.C. 7a-1(c)(2).
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a. The following DCO Core Principles may be relevant in this
regard: (C) participant and product eligibility, (D) risk management,
(H) rule enforcement, and (I) system safeguards.\43\ What factors
should the Commission consider in applying these Core Principles?
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\43\ CEA sections 5b(c)(2)(C), (D), (H), (I), 7 U.S.C. 7a-
1(c)(2)(C), (D), (H), (I).
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b. Are there relevant differences in how the Core Principles and
underlying regulations for DCMs and DCOs apply to prediction markets?
If so, how should the differences factor into the Commission's
consideration of these issues?
c. What implications for DCOs should the Commission consider if
event contracts were traded on prediction markets on margin? Are there
any issues arising with respect to, for example, the requirements in
DCO Core Principle D that ``(iv) . . . [t]he margin required from each
member and participant of a [DCO] shall be sufficient to cover
potential exposures in normal market conditions'' and ``(v) . . .
[e]ach model and parameter used in setting margin requirements under
clause (iv) shall be--(I) risk-based; and (II) reviewed on a regular
basis''? \44\ What factors should the Commission consider regarding the
clearing silo, if any, that would be appropriate for event contracts?
What factors should the Commission consider regarding whether event
contracts should be eligible for margin credit or cross margin, both on
DCOs, and when cross-margined with securities exchanges? See also
question 2.f. regarding margin considerations for DCMs.
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\44\ CEA section 5b(c)(2)(D), 7 U.S.C. 7a-1(c)(2)(D).
---------------------------------------------------------------------------

4. Institutional traders (that is, parties that are eligible
contract participants) may enter into event contracts on prediction
markets registered as SEFs, which are subject to Core Principles in CEA
section 5h(f).\45\ Are there aspects of prediction markets that the
Commission should consider in applying these Core Principles? How is
trading on prediction markets by institutional traders the same, or
different from, retail trading on prediction markets? How would or does
prediction market trading on DCMs and SEFs impact liquidity in both
types of exchanges? What factors should the Commission consider in
determining whether any public disclosure requirements should apply to
prediction market trading on SEFs? For example, would public disclosure
help to mitigate, or exacerbate, adverse selection? Are there specific
points on which the Commission should provide guidance or adopt rule
amendments? If so, why?
---------------------------------------------------------------------------

\45\ 7 U.S.C. 7b-3(f). The term ``eligible contract
participant'' is defined in CEA section 1a(18), 7 U.S.C. 1a(18).
---------------------------------------------------------------------------

5. What factors should the Commission consider in determining
whether to provide guidance or amend any other of its regulations with
respect to the listing, trading, and clearing of event contracts on
prediction markets?
a. CEA section 2(a)(13) authorizes the Commission ``to make swap
transaction and pricing data available to the public in such form and
at such times as the Commission determines appropriate to enhance price
discovery.'' \46\ CEA section 2(a)(13)(G) states that each swap ``shall
be reported to a registered swap data repository.'' \47\ What factors
should the Commission consider in applying these provisions to
prediction markets listing event contracts as swaps? Are there aspects
of event contract swaps that hinder or facilitate their reporting to a
swap data repository or the public availability of the relevant
transaction and pricing data? To what extent should such reporting and
data availability be standardized in order, for example, to facilitate
Commission analysis and to detect potential cross-market activity from
a risk or manipulation perspective? Are public identifiers (e.g.,
CUSIP/ISIN/LEI) \48\ appropriate for event contracts? How does such
reporting and data availability relate to enhanced price discovery?
---------------------------------------------------------------------------

\46\ 7 U.S.C. 2(a)(13)(B); see also 17 CFR part 43 and 17 CFR
part 45.
\47\ 7 U.S.C. 2(a)(13)(G).
\48\ A CUSIP number is an identifier for financial instruments
assigned by the Committee on Uniform Securities Identification
Procedures. An International Securities Identification Number (ISIN)
is an identifier used globally. A legal entity identifier (LEI) is
assigned through the Global Legal Entity Identifier Foundation.
---------------------------------------------------------------------------

b. CEA section 4c(a)(1) and (2)(A) provide that it is unlawful to
enter into a transaction involving a futures contract, option thereon,
or swap, if the transaction is a pre-arranged or noncompetitive trade,
or a wash sale.\49\ What factors should the Commission consider in
applying these provisions to prediction markets? Are there aspects of
prediction markets that make them more or less susceptible to pre-
arranged or noncompetitive trades, or wash sales?
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\49\ 7 U.S.C. 6c(a)(1) and (2)(A). See also Regulation 1.38(a),
17 CFR 1.38(a) (competitive execution requirement).
---------------------------------------------------------------------------

c. CEA section 4c(a)(5) provides that it is unlawful to engage, on
any CFTC-registered entity, in disruptive trading practices.\50\ What
factors should the Commission consider in applying this provision to
prediction markets? Are there aspects of prediction markets that make
them more or less susceptible to disruptive trading practices?
---------------------------------------------------------------------------

\50\ 7 U.S.C. 6c(a)(5).
---------------------------------------------------------------------------

6. With respect to any rule changes that the Commission may propose
for the foregoing reasons, what are the relevant considerations of
costs and benefits? \51\ What less costly alternatives should the
Commission consider? Please provide any relevant specific information,
data, or studies regarding the costs and benefits of such regulations
that you may have.
---------------------------------------------------------------------------

\51\ CEA section 15(a) requires that the Commission, before it
promulgates a regulation under the CEA, consider the costs and
benefits of its action. 7 U.S.C. 19(a). Further, CEA section
15(a)(2) states that ``[t]he costs and benefits of the proposed
Commission action shall be evaluated in light of--(A) considerations
of protection of market participants and the public; (B)
considerations of the efficiency, competitiveness, and financial
integrity of futures markets; (C) considerations of price discovery;
(D) considerations of sound risk management practices; and (E) other
public interest considerations.'' 7 U.S.C. 19(a)(2). In responding
to this question, please consider these five considerations.
---------------------------------------------------------------------------

B. Public Interest

7. As described above, CEA section 5c(c)(5)(C) provides for the
Commission to make a determination that event contracts are ``contrary
to the public interest'' if the event contracts involve any of five
listed activities or ``other similar activity determined by the
Commission, by rule or regulation, to be contrary to the public
interest.'' \52\ In general, what factors should the Commission
consider in making a public interest determination under this section?
(Public interest factors specific to the five listed activities are
discussed in part II.C., below, in connection with those activities.)
---------------------------------------------------------------------------

\52\ 7 U.S.C. 7a-2(c)(5)(C).
---------------------------------------------------------------------------

8. The public interests underlying the CEA are described in CEA
section 3(a), which states that ``[t]he transactions subject to [the
CEA] . . . are affected with a national public interest by providing a
means for managing and assuming price risks, discovering prices, or
disseminating pricing information through trading in liquid, fair and
financially secure trading facilities.'' \53\ Further, CEA section 3(b)
provides that in order to foster the public interests described in
subsection (a), the

[[Page 12521]]

purposes of the CEA include ``to deter and prevent price manipulation
or any other disruptions to market integrity; to ensure the financial
integrity of all transactions subject to [the CEA] and the avoidance of
systemic risk; to protect all market participants from fraudulent or
other abusive sales practices and misuses of customer assets; and to
promote responsible innovation and fair competition among [DCMs], other
markets and market participants.'' \54\ How should the public interests
set out in CEA section 3 inform the Commission's public interest
determination under CEA section 5c(c)(5)(C)?
---------------------------------------------------------------------------

\53\ 7 U.S.C. 5(a).
\54\ 7 U.S.C. 5(b).
---------------------------------------------------------------------------

9. Under a past version of the CEA that was repealed in 2000, the
Commission applied an ``economic purpose'' test as part of determining
whether a DCM could list a contract for trading.\55\ Are there any
elements of the former ``economic purpose'' test that should or should
not be applied in the Commission's public interest determination under
CEA section 5c(c)(5)(C)?
---------------------------------------------------------------------------

\55\ See 2008 Concept Release, 73 FR at 25672.
---------------------------------------------------------------------------

10. What role do event contracts play in ``managing and assuming
price risks, discovering prices, or disseminating pricing information''
as contemplated by CEA section 3(a)? How are event contracts used in
hedging, which is one aspect of managing price risks? How should the
Commission incorporate considerations of hedging, price risk, price
discovery, and price dissemination in its public interest determination
under CEA section 5c(c)(5)(C)?
11. CEA section 3(b) lists several purposes of the CEA, including
to prevent price manipulation, to protect all market participants from
fraudulent or other abusive sales practices, and to promote responsible
innovation and fair competition.\56\ What factors should the Commission
consider in its effort to fulfill these purposes with respect to
prediction markets? Is there any potential conflict between these
purposes, and if so, how should they be balanced?
---------------------------------------------------------------------------

\56\ 7 U.S.C. 5(b).
---------------------------------------------------------------------------

12. How do event contracts compare to, or substitute for, insurance
contracts? Should the liquidity and availability of insurance with
respect to a particular event be a factor in the Commission's public
interest determination?
13. Why, or why not, would it be appropriate for the Commission to
propose any changes to its regulations related to its public interest
determination?
14. If the Commission were to propose any changes to its
regulations related to its public interest determination, what
considerations of costs and benefits would be relevant to those
changes? What less costly alternatives should the Commission consider?
Please provide any relevant specific information, data, or studies that
you may have regarding the costs and benefits of such rule changes.

C. Activities Listed in CEA Section 5c(c)(5)(C)

15. CEA section 5c(c)(5)(C) lists five activities, and provides
that if an event contract involves any such activity, the Commission
may determine that the event contract is contrary to the public
interest. What factors should the Commission consider in determining
the scope of these five listed activities? What aspects of these
activities would be relevant to the Commission's public interest
determination?
16. The first listed activity is an ``activity that is unlawful
under any Federal or State law.'' What types of event contracts could
potentially involve such activity? What steps should the Commission
appropriately take in order to determine which State laws may be
involved in a particular event contract? What steps should the
Commission appropriately take in order to determine which Federal laws,
such as the Exchange Act, may be involved in a particular event
contract? If an event contract involves an activity that is unlawful
under some State laws, but not others, how should this conflict be
resolved? What public interest factors should the Commission consider
for event contracts involving unlawful activity?
17. The second and third listed activities are terrorism and
assassination. Are the meanings of these terms self-evident, or are
there any ambiguities that the Commission should consider? Are specific
definitions in other contexts, such as insurance, helpful? Would event
contracts involving cyberterrorism be covered by the terrorism
provision, and if so, what factors distinguish cyberterrorism from
other cyber attacks? What public interest factors should the Commission
consider for event contracts involving terrorism or assassination?
18. The fourth activity is war. Does this activity encompass all
military actions, or are there military actions that do not constitute
war? What factors distinguish war from, for example, civil unrest? What
factors distinguish war from political actions, or other actions as
part of international relations? Are specific definitions in other
contexts, such as insurance, helpful? What public interest factors
should the Commission consider for event contracts involving war?
19. The fifth activity is gaming. What factors should the
Commission consider in determining the scope and public interest
implications of this activity?
a. What sources should inform the Commission's determination of the
scope of the term ``gaming''? For example, is gaming synonymous with,
or more or less extensive than, the scope of activities covered by
State and Federal gambling statutes? Are there characteristics--such as
an entertainment purpose, or an element of chance--that distinguish
gaming from other activities?
b. In this regard, how should the Commission distinguish between
various types of contests? For example, should a sports competition be
treated differently than an award competition, and if so, what factors
support this distinction? What other types of contests should or should
not be considered to be gaming?
c. What aspects of event contracts involving gaming should the
Commission consider in a public interest determination? For these event
contracts, are there any challenges to the deterrence of manipulation
and protection from abusive sales practices contemplated by CEA section
3(b)? If so, how could these challenges be mitigated? How are the
responsible innovation and fair competition goals in CEA section 3(b)
served by event contracts involving gaming?
d. How should the Commission factor into its public interest
determination the characteristics of market participants that trade
event contracts involving gaming? For example, do these market
participants tend to be younger than those trading other financial
instruments, and if so, how should this inform the Commission's
consideration?
e. What aspects of responsible gaming standards, such as self-
exclusion programs, monetary or time limits, or advertising limits,
disclaimers, or warnings, should the Commission consider in its public
interest determination?
f. How do the various types of event contract that involve gaming
differ from each other? How are these differences relevant to the
Commission's public interest determination?
20. CEA section 5c(c)(5)(C)(i)(VI) provides that the Commission may
determine that an event contract is contrary to the public interest if
it involves another ``similar activity determined by the Commission, by
rule or regulation, to be contrary to the

[[Page 12522]]

public interest.'' \57\ What factors should the Commission consider in
determining whether an activity is similar to the activities listed in
CEA section 5c(c)(5)(C)? Are there any examples of existing event
contracts involving potentially similar activities that should be a
factor in the Commission's determination on this issue? Are there any
differences in how the public interest determination should be applied
to such similar activities, as compared to the listed activities?
---------------------------------------------------------------------------

\57\ 7 U.S.C. 7a-2(c)(5)(C)(i)(VI).
---------------------------------------------------------------------------

21. Why, or why not, would it be appropriate for the Commission to
propose any changes to its regulations related to the activities listed
in CEA section 5c(c)(5)(C)?
22. If the Commission were to propose any changes to its
regulations related to the activities listed in CEA section
5c(c)(5)(C), what considerations of costs and benefits would be
relevant to those changes? What less costly alternatives should the
Commission consider? Please provide any relevant specific information,
data, or studies that you may have regarding the costs and benefits of
such regulations or rule changes.

D. Procedural Aspects of CEA Section 5c(c)(5)(C)

23. CEA section 5c(c)(5)(C)(i) provides that the Commission may
make a public interest determination ``[i]n connection with the
listing'' of event contracts by prediction markets.\58\ What aspects of
the prediction market listing process are relevant to deciding at what
point in the listing process the public interest determination could
occur? What factors should inform the Commission's interpretation of
what occurs ``[i]n connection with the listing'' by a prediction market
of an event contract? For example, why would it be appropriate, or not,
for the Commission to make a public interest determination when a
listing application is reasonably expected, but not yet filed?
---------------------------------------------------------------------------

\58\ 7 U.S.C. 7a-2(c)(5)(C)(i).
---------------------------------------------------------------------------

24. What factors should inform the Commission's interpretation of
whether CEA section 5c(c)(5)(C) contemplates that elements of a public
interest determination could be made with respect to a category of
event contracts, rather than a specific event contract? For example,
what factors should the Commission consider in determining whether to
provide guidance regarding how it expects to make any public interest
determination? Would it be useful for the Commission to provide
illustrative examples of event contracts that do, or do not, involve
the listed activities? Why or why not?
25. CEA section 5c(c)(5)(C)(i) provides that the Commission may
make a public interest determination for event contracts that
``involve'' the listed activities.\59\ What elements are relevant to
determining what event contracts ``involve''? What factors should
inform the Commission's interpretation of when event contracts are
sufficiently tied to a listed activity in order to say that the event
contracts ``involve'' that activity?
---------------------------------------------------------------------------

\59\ Id.
---------------------------------------------------------------------------

26. CEA section 5c(c)(5)(C)(iv) provides that the Commission must
take final action regarding its public interest determination ``not
later than 90 days from the commencement of [the Commission's] review
unless the party seeking to offer the contract or swap agrees to an
extension.'' \60\ How should this time limit inform the Commission's
procedure for making public interest determinations? Considering this
limitation, what steps would be appropriate, or not, for the Commission
to take prior to making its determination?
---------------------------------------------------------------------------

\60\ 7 U.S.C. 7a-2(c)(5)(C)(iv).
---------------------------------------------------------------------------

27. Why, or why not, would it be appropriate for the Commission to
propose any changes to its regulations related to procedures under CEA
section 5c(c)(5)(C)?
28. If the Commission were to propose any changes to its
regulations related to procedures under CEA section 5c(c)(5)(C), what
considerations of costs and benefits would be relevant to those
changes? What less costly alternatives should the Commission consider?
Please provide any relevant specific information, data, or studies that
you may have regarding the costs and benefits of such regulations or
rule changes.

E. Inside Information

29. The price on a prediction market could be viewed as an
indication of how likely the underlying event is to occur. The price
may be a more reliable indicator of probability if the people trading
on the prediction market have some insight into how likely the
underlying event is to occur. On the other hand, trading by these
informed participants may lead to manipulation, unfairness, and the
misuse of inside information. Is there some public interest utility if
people with an asymmetric information advantage on a particular event
contract are able to trade on prediction markets? Does the public
interest utility depend on the type of event in question? What factors
should the Commission consider in evaluating and balancing the public
interest in this scenario?
30. Some events underlying event contracts are under the control of
a single individual or small group of individuals. What role should
this aspect of event contracts play in the Commission's consideration
of how prediction markets should be regulated? Do the considerations
change depending on the type of event in question? Are there particular
challenges related to cross-market manipulation--for example, where an
individual or small group of individuals seeks to move the prediction
market to influence another market, or vice versa? Are prediction
markets more likely than other DCMs or SEFs to be susceptible to
manipulation? Why or why not?
31. CEA section 6(c)(1) provides that ``[i]t shall be unlawful for
any person, directly or indirectly, to use or employ, or attempt to use
or employ, in connection with any swap, or a contract of sale of any
commodity in interstate commerce, or for future delivery on or subject
to the rules of any registered entity, any manipulative or deceptive
device or contrivance, in contravention of such rules and regulations
as the Commission shall promulgate by [July 21, 2011], provided no rule
or regulation promulgated by the Commission shall require any person to
disclose to another person nonpublic information that may be material
to the market price, rate, or level of the commodity transaction,
except as necessary to make any statement made to the other person in
or in connection with the transaction not misleading in any material
respect.'' \61\ What aspects of prediction markets are relevant to the
application of this statute? Are prediction markets more or less likely
than other derivative markets to be susceptible to ``any manipulative
or deceptive device or contrivance''? How should the potential for
application of this statute inform the Commission's regulation of
prediction markets?
---------------------------------------------------------------------------

\61\ 7 U.S.C. 9(1). See also Regulation 180.1, 17 CFR 180.1.
---------------------------------------------------------------------------

32. CEA section 4c(a)(3) provides that ``[i]t shall be unlawful for
any employee or agent of any department or agency of the Federal
Government or any Member of Congress or employee of Congress . . . or
any judicial officer or judicial employee . . . who, by virtue of the
employment or position of the Member, officer, employee or agent,
acquires information that may affect or tend to affect the price of any
commodity in interstate commerce, or for future delivery, or any swap,
and which

[[Page 12523]]

information has not been disseminated [or disclosed] . . . in a manner
which makes it generally available to the trading public, . . . to use
the information in his personal capacity and for personal gain to enter
into, or offer to enter into [a futures contract, option on a futures
contract, commodity option, or swap].'' \62\ Similarly, CEA section
4c(a)(4) provides that it is unlawful for any such Federal Government
employee or official to impart such information in his personal
capacity and for personal gain with intent to assist another person in
entering into a futures contract, option on a futures contract,
commodity option, or swap, and it is unlawful for the other person who
receives such information from any such Federal Government employee or
official to knowingly use the information in such transactions.\63\ How
are prediction markets likely to be affected by nonpublic information
that is available to Federal Government employees or officials? How
should the potential for application of this statute inform the
Commission's regulation of prediction markets?
---------------------------------------------------------------------------

\62\ 7 U.S.C. 6c(a)(3).
\63\ 7 U.S.C. 6c(a)(4).
---------------------------------------------------------------------------

F. Types of Event Contracts and Other Issues

33. As noted above, event contracts may be covered by the statutory
definition of the term ``swap'' in CEA section 1a(47)(A).\64\ What
aspects of prediction markets are relevant to whether event contracts
should, or should not, appropriately be classified as swaps? What
aspects, if any, distinguish event contracts from other types of swaps?
The definition in CEA section 1a(47)(A)(ii) includes an event contract
that ``is dependent on the occurrence, nonoccurrence, or the extent of
the occurrence of an event or contingency associated with a potential
financial, economic, or commercial consequence.'' \65\ What potential
financial, economic, or commercial consequences underlie event
contracts? Similarly, CEA section 1a(47)(A)(i) includes an event
contract that is an option ``based on the value, of . . . financial or
economic interests or property of any kind.'' \66\ How are any event
contracts based on the value of financial or economic interests or
property? What idiosyncratic risks embedded in event contracts
differentiate them from other commodity derivative instruments? How
should the Commission take these risks into account when considering
how to regulate event contracts and prediction markets? Commodity
options are also covered by the statutory swap definition in CEA
section 1a(47)(A)(i).\67\ How are event contracts similar to, or
different from, other types of commodity options?
---------------------------------------------------------------------------

\64\ See text accompanying note 11, supra.
\65\ 7 U.S.C. 1a(47)(A)(ii).
\66\ 7 U.S.C. 1a(47)(A)(i).
\67\ Id.
---------------------------------------------------------------------------

34. Event contracts are also traded on DCMs as futures
contracts.\68\ What aspects of prediction markets are relevant to
whether event contracts should, or should not, appropriately be
classified as futures contracts? What aspects, if any, distinguish
event contracts from other types of futures contracts?
---------------------------------------------------------------------------

\68\ See supra, note 14.
---------------------------------------------------------------------------

35. The event underlying an event contract is typically within the
definition of the term ``excluded commodity'' in CEA section
1a(19).\69\ Are there any event contracts that are based on events that
are not within this statutory definition? If so, how are those event
contracts similar to, or different from, event contracts based on
events that are within the statutory definition of ``excluded
commodity''? How are such differences, if any, relevant to the
Commission's regulation of event contracts and prediction markets?
---------------------------------------------------------------------------

\69\ 7 U.S.C. 1a(19). The definition is set out in full in note
23, supra.
---------------------------------------------------------------------------

36. Are there any agreements, contracts or transactions that are
significantly similar to event contracts, but are not listed on a DCM
or SEF? If so, how are those agreements, contracts or transactions
similar to, or different from, event contracts listed on DCMs and SEFs?
37. In the 2012 joint rulemaking to further define the term
``swap,'' the CFTC and the SEC adopted an interpretation which, in
part, listed certain types of agreements, contracts, or transactions
that ``will not be considered swaps or security-based swaps when
entered into by consumers (natural persons) . . . primarily for
personal, family, or household purposes.'' \70\ In doing so, the CFTC
and SEC stated that they ``do not believe that Congress intended to
include these types of customary consumer and commercial agreements,
contracts, or transactions in the swap or security-based swap
definition, to limit the types of persons that can enter into or engage
in them, or to otherwise to subject these agreements, contracts, or
transactions to the regulatory scheme for swaps and security-based
swaps.'' \71\ Are any event contracts similar to, or different from,
the types of agreements, contracts and transactions that are excluded
from the swap definition under this interpretation? How are such
similarities or differences, if any, relevant to the CFTC's regulation
of those event contracts?
---------------------------------------------------------------------------

\70\ Further Definition of ``Swap,'' ``Security-Based Swap,''
and ``Security-Based Swap Agreement''; Mixed Swaps; Security-Based
Swap Agreement Recordkeeping, 77 FR 48208, 48246 (Aug. 13, 2012).
This further definition was adopted pursuant to Dodd-Frank Act
section 712(d)(1), which directed the CFTC and SEC to undertake a
joint rulemaking to define, among other terms, ``Swap,'' ``Security-
Based Swap,'' and ``Security-Based Swap Agreement.''
\71\ Id.
---------------------------------------------------------------------------

38. As noted above, CEA section 15(a) requires that the Commission,
before it promulgates a regulation under the CEA, consider the costs
and benefits of its action, including an evaluation ``in light of--(A)
considerations of protection of market participants and the public; (B)
considerations of the efficiency, competitiveness, and financial
integrity of futures markets; (C) considerations of price discovery;
(D) considerations of sound risk management practices; and (E) other
public interest considerations.'' \72\ How are these five
considerations relevant to the Commission's regulation of prediction
markets? In general, what other costs and benefits should the
Commission consider as it determines whether to adopt or amend any
regulations with respect to prediction markets? Are there less costly
alternatives that the Commission should consider? If possible, please
provide specific information, data, or studies that you believe would
be helpful to the Commission in this regard.
---------------------------------------------------------------------------

\72\ 7 U.S.C. 19(a).
---------------------------------------------------------------------------

39. CEA section 15(b) requires that the Commission ``take into
consideration the public interest to be protected by the antitrust laws
and endeavor to take the least anticompetitive means of achieving the
objectives of [the CEA], as well as the policies and purposes of [the
CEA], in issuing any order or adopting any Commission rule or
regulation.'' \73\ What aspects of prediction markets are relevant to
the Commission's consideration of the public interest to be protected
by the antitrust laws as it determines whether to adopt or amend any
regulations with respect to prediction markets? It may be appropriate
to consider the scope of the relevant market in this regard; in that
case, what factors should the Commission take into account? Also, it
may be appropriate for the Commission to ``endeavor to take the least
anticompetitive means,'' as contemplated by CEA section 15(b),

[[Page 12524]]

with respect to prediction markets; in that case, what factors should
the Commission take into account?
---------------------------------------------------------------------------

\73\ 7 U.S.C. 19(b).
---------------------------------------------------------------------------

40. As noted above, the Commission has received recent applications
for DCM registration from entities that have indicated that they are
interested primarily, or exclusively, in operating prediction markets.
While registered entities are not considered small entities by the
Commission for Regulatory Flexibility Act (RFA) purposes,\74\ the
Commission is nevertheless seeking information on how any potential
rule changes for prediction markets would impact ``small entities'' as
defined by the RFA.\75\ What projected cost increases would there be
for any small entities impacted by a potential rule change? What less
costly alternatives or flexibilities should the Commission consider? In
general, how do small entities use prediction markets?
---------------------------------------------------------------------------

\74\ The Commission previously determined that DCMs are not
small entities in accordance with the RFA. See Policy Statement and
Establishment of Definitions of ``Small Entities'' for Purposes of
the Regulatory Flexibility Act, 47 FR 18618 (Apr. 30, 1982).
Similarly, the Commission previously determined that SEFs are not
small entities for purposes of the RFA. See Core Principles and
Other Requirements for SEFs, 78 FR 33476, 33548 (June 4, 2013).
\75\ 5 U.S.C. 601 et seq. The RFA provides that the term ``small
entity'' has the same meaning as ``small business'', ``small
organization'' and ``small governmental jurisdiction'' defined in
paragraphs (3), (4) and (5) of section 601. ``Small business,'' in
turn, is defined as having the same meaning of ``small business
concern'' set forth in section 3 of the Small Business Act (SBA). 5
U.S.C. 601(6). The RFA permits an agency to establish its own
definition of small entity; otherwise, size standards set forth by
the SBA apply. A size standard, which is usually stated in number of
employees or average annual receipts, represents the largest size
that a business (including its subsidiaries and affiliates) may be
to remain classified as a small business for SBA and federal
contracting programs. The definition of ``small'' varies by
industry. The SBA provides that the small business size threshold
for securities and commodity exchanges is $47 million in average
annual receipts. See SBA's 2022 Table of Size Standards, classifying
securities and commodity exchanges under the North American Industry
Classification System (NAICS), code 523210, Sector 52-Finance and
Insurance, Subsector 523-Securities, Commodity Contracts, and Other
Financial Investments and Related Activities, available at https://www.sba.gov/document/support-table-size-standards.
---------------------------------------------------------------------------

The Office of Management and Budget has determined that this action
is a significant regulatory action as defined in Executive Order 12866,
as amended, and this action has been reviewed by the Office of
Management and Budget.

Issued in Washington, DC, on March 12, 2026, by the Commission.
Christopher Kirkpatrick,
Secretary of the Commission.

Note: The following appendix will not appear in the Code of
Federal Regulations.

Appendix to Prediction Markets--Commission Voting Summary

On this matter, Chairman Selig voted in the affirmative. No
Commissioner voted in the negative.

[FR Doc. 2026-05105 Filed 3-13-26; 8:45 am]
BILLING CODE 6351-01-P